The Case For ‘Progressive Renovation’: Legacy Systems Are Not Equipped for Today’s Multichannel Banking

The emergence of new disruptive market entrants is forcing banks to accelerate their core systems modernization efforts. Growth and product innovation hang in the balance.

Therefore, in order to keep pace with these growing customer demands, banks need to ensure that their fundamental architectures and core systems can support product life cycles, operations and marketing initiatives that deliver a positive customer experience and maximize efficiencies across the business.

A complete banking solution implements many lines of business (loans and deposits for core banking) across multiple geographies and across front, middle and back office, which means that a component-based architecture can provide a "building block approach" that makes it easier for larger banks to implement specific parts progressively. This can make it far easier to keep systems up to date. Rather than a "rip and replace" approach to upgrades or maintenance, components can be tweaked, replaced or augmented on an individual basis.

Getting Ahead Of The Game

Banks need to cover the ground already lost to alternative banking disruptors and ensure that they have the necessary technology to provide what customers require in a competitive environment. Before the financial crisis, the high cost of legacy systems was not a key concern for management and investors as financial inefficiencies could be masked and rendered less important by robust income growth. In addition, banks could afford enough specialist staff to keep extending the lives of their systems and avoid any major mishaps.

The time is now for banks across the globe to repair this, a move that is reinforced by a combination of structural factors -- such as reregulation, heightened competition, more demanding customers and higher funding costs. These have reset profitability and exposed the inefficiencies of legacy IT platforms, something that must be rectified progressively if banks are to reposition themselves as modern, agile and forward-thinking service providers.

Ben Robinson is the director of strategy and marketing at Temenos, a software company in Geneva specializing in core banking systems.